By Adam Wagner
You need awesome margins to make DtC work.
I know this is hard to hear for many brands that have either Retail or Amazon as their primary sales channel.
Having grown up in DtC, I didn’t realize how many brands have margins in the 40-60% range that are crushing on Amazon and/or have massive Retail distribution.
It makes sense now, the Cost+ model for product development is incredibly competitive when you know you have a committed partner that is going to drive the demand for your product.
Retail and Amazon are actually very similar. Retailers provide the foot traffic for your brand to convert and Amazon provides the massive audience of searches that can’t wait to find your product.
In both channels, once a brand is on shelf their primary goal is to use their packaging and USPs to win purchases.
This allows retailers to push for more competitive prices and for brands to build their business with as thin of margins as possible.
The problem occurs when these same brands decide that growing their DtC revenue is a mission critical objective for the business.
DtC has the advantage of allowing anyone to create a website and start selling products. The disadvantage is that there is no inherent traffic source for DtC. You need to create and earn all of that “foot traffic”.
This is a VERY expensive process as Meta, TikTok and Google continue to raise their CPMs.
DtC brands are trying to stop consumers in their normal day-to-day activities of life to purchase their product. Amazon and Retail brands are trying to win over consumers who have likely already made a decision to purchase and have a limited number of options.
This dynamic creates a need for far more spending on marketing for DtC to be successful. You need much more than compelling packaging.
This is why 80%+ margins are so important for DtC success. In a 40-60% margin P&L, you literally don’t have room for marketing costs.
I don’t share this to be doom and gloom for Retail and Amazon first brands. I share this to help you understand what is necessary to make DtC growth possible. It’s totally normal to have DtC only products, special releases or even different prices online.
You should figure out how to make Amazon, Retail and DtC work. Just remember that they all require different strengths and business structures.
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This article is a part of The Q2 2024 Founders’ Report. The Founders’ Report is a quarterly digest of the top conversations, insights and learnings that Jacques and Adam are having with our clients and top marketers. Sign up here.